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| | London Market Report |  | | FTSE 100 | Euronext | Dax perf | CAC 40 |  |  |  |  | | Please click on the images to view our interactive charts | | | London close: Stocks end lower after data-heavy day, retailers drag London's blue chips ended Tuesday on a weaker note, as investors responded to a data-heavy session against a backdrop of the on-going protests in Hong Kong.
With retailers dragging the way lower, the FTSE 100 closed 23.88 points lower at 6,622.72.
Much of the day's focus was on the Eurozone, where figures showed a drop in the region's core rate of inflation to a five-year low of 0.3%. The jobless rate in the euro-area held at 11.5% in August.
The European Central Bank, which is targeting inflation of just below 2%, has been under pressure to take further policy action such as full-on QE ahead of its meeting on Thursday.
"If the macroeconomic picture deteriorates and medium-term inflation expectations move another clear leg down, we would expect the ECB to respond by broadening its purchase program to include assets like senior bank bonds, non-financial debt and potentially also EFSF/ESM bonds, with the main aim of accelerating balance sheet expansion and debasing the currency (forget the transmission mechanism!)," UniCredit said.
The euro/dollar fell to two-year lows below the key $1.2600 level after the inflation report. The euro fell 0.73% to $1.2592 at the midday mark.
Back in the UK, gross domestic product (GDP) expanded at a 0.9% quarter-on-quarter pace in the second quarter, according to revised estimates from the Office for National Statistics, slightly ahead of the 0.8% gain expected by economists.
That came as it was announced that UK house prices declined by an average 0.2% in September, according to Nationwide.
This caused the annual rate of house price growth to fall to its lowest point in eight months, the latest evidence to suggest a softening housing market.
Broker comment lifts Associated British Foods
Associated British Foods climbed after Credit Suisse upgraded the stock to 'outperform' with a target of 3,000p.
Product testing group Intertek was a strong riser after investors learned it has appointed Andr? Lacroix as chief executive. Lacroix has spent close to a decade in charge of automotive dealership company Inchape.
State-owned lender Royal Bank of Scotland headed north after it revealed it now expects to "significantly" outperform its previous guidance of approximately ?1bn in total impairments for the fiscal year 2014 thanks to a strong operating performance by RBS Capital Resolution and a continued improvement in economic conditions and asset prices, including Ireland.
Clothes retailer Next led the downside after it warned that third quarter sales were lower than its previous expectations and a continuation of the cold weather could reduce full year profits. However, the FTSE 100 group was confident enough to maintain its full year guidance, saying "our experience suggests that some lost sales are regained when the weather turns".
According to The Times, the latest data from Kantar Worldpanel has shown that Marks & Spencer, the retailer led by Marc Bolland, is losing market share, prompting a drop in the retailer's share price.
Canaccord Genuity dragged Weir Group into the red after lowering its rating to 'hold' from 'buy' and cutting its target from 3,000p to 2,775p. |
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| | Market Movers
techMARK 2,812.24 -0.22%
FTSE 100 6,622.72 -0.36%
FTSE 250 15,379.72 -0.07%
FTSE 100 - Risers
Associated British Foods (ABF) 2,679.00p +4.53%
easyJet (EZJ) 1,423.00p +3.04%
Intertek Group (ITRK) 2,621.00p +2.10%
Royal Bank of Scotland Group (RBS) 368.20p +1.88%
Sainsbury (J) (SBRY) 251.50p +1.70%
Diageo (DGE) 1,785.00p +1.28%
Compass Group (CPG) 996.50p +1.27%
Pearson (PSON) 1,240.00p +1.22%
CRH (CRH) 1,410.00p +1.22%
Smiths Group (SMIN) 1,264.00p +1.12%
FTSE 100 - Fallers
Next (NXT) 6,605.00p -3.79%
Prudential (PRU) 1,376.00p -2.72%
Marks & Spencer Group (MKS) 404.60p -2.60%
Sports Direct International (SPD) 618.50p -2.44%
Intu Properties (INTU) 322.70p -2.21%
Legal & General Group (LGEN) 228.90p -2.14%
GKN (GKN) 319.20p -2.12%
ARM Holdings (ARM) 906.00p -2.00%
St James's Place (STJ) 730.00p -1.88%
IMI (IMI) 1,230.00p -1.84%
FTSE 250 - Risers
Hikma Pharmaceuticals (HIK) 1,733.00p +6.65%
RPC Group (RPC) 559.00p +6.37%
Centamin (DI) (CEY) 61.15p +5.34%
African Barrick Gold (ABG) 218.80p +5.24%
Melrose Industries (MRO) 247.70p +4.34%
BTG (BTG) 700.00p +3.78%
Polymetal International (POLY) 516.00p +3.78%
Bank of Georgia Holdings (BGEO) 2,458.00p +3.49%
Lonmin (LMI) 185.80p +3.11%
Evraz (EVR) 130.00p +2.85%
FTSE 250 - Fallers
AL Noor Hospitals Group (ANH) 1,018.00p -6.52%
Inchcape (INCH) 644.00p -3.95%
Debenhams (DEB) 58.30p -2.59%
Jardine Lloyd Thompson Group (JLT) 973.00p -2.55%
SSP Group (SSPG) 259.70p -2.52%
Greencore Group (GNC) 234.00p -2.50%
IP Group (IPO) 204.20p -2.48%
Ferrexpo (FXPO) 112.30p -2.43%
ICAP (IAP) 387.30p -2.12%
AO World (AO.) 188.00p -2.08% |
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| | Europe Market Report | | | | FTSE 100 | Euronext | Dax perf | CAC 40 |  | | | | | | Europe close: Stocks higher as Eurozone inflation slowdown fuels QE speculation Speculation on stimulus measures by the European Central Bank (ECB) ahead of its meeting drove most stocks in the euro-area higher on Tuesday.
Data showing a rise in German unemployment and fall in Eurozone inflation added pressure on the ECB to take further action, such as full-on quantitative easing.
German unemployment rose by 12,000 in September after a 3,000 increase a month earlier, surprising analysts who predicted a 2,000 fall. The unemployment rate held at 6.7% in September.
Eurozone inflation eased back to 0.3% year-on-year in September from 0.4% the previous month, as expected. The jobless rate in the euro-area held at 11.5% in August.
"If the macroeconomic picture deteriorates and medium-term inflation expectations move another clear leg down, we would expect the ECB to respond by broadening its purchase program to include assets like senior bank bonds, non-financial debt and potentially also EFSF/ESM bonds, with the main aim of accelerating balance sheet expansion and debasing the currency (forget the transmission mechanism!)," UniCredit said.
The ECB, which is targeting inflation of just below 2%, meets on Thursday.
The euro/dollar fell to two-year lows below the key $1.2600 level after the inflation report. The euro picked up at close of trading to $1.2614.
In the UK, gross domestic product was confirmed at 3.2% year-on-year in the second quarter, as estimated by analysts. However, quarter-on-quarter numbers were revised higher to 0.9% from an earlier estimate of 0.8%, ahead of forecasts for an unchanged reading.
In the US, the Conference Board's index of consumer confidence fell to 86 in September from a post-recession high of 93.4 in August, below the consensus of 92.4, led by lower expectations of the economic outlook. "Despite the larger-than-expected decline, the reading represents the fourth-highest reading during the recovery," Barclays Research said.
Next, RBS
Next declined after saying it is likely to cut its annual profit forecast if the warm weather in the UK continues throughout October.
Royal Bank of Scotland Group advanced after saying total impairment charges for this year will be lower than previously estimated.
Bank of Ireland edged higher after Irish property prices helped reduce impairment charges in the country. |
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| | US Market Report | | US open: Markets open lower amid rising tensions in Hong Kong US markets opened significantly lower on Monday, amid an escalation in political tensions in Hong Kong.
Figures released on Monday showed that consumers spent 0.5% more in August, while the data for July was revised upwards, after initial reports last month had shown a 0.1% decline. Figures exceeded analysts' median forecast of a 0.4% rise.
Analysts suggested that the increase in spending confirmed that consumers were less intent on saving, an indication of their growing confidence in the current economic climate.
A further report, published by the National Association of Realtors, showed contracts to purchase previously owned properties declined in August, as limited wage growth and tighter credit weighed on potential buyers.
More economic data will be released over the next five days, with US figures on employment and output from the manufacturing and services industries due out this week.
In corporate news, Apple dropped 1.5% after news emerged that the European Union will probe the company's tax breaks in Ireland, while Civeo plummeted after the provider of workforce accommodation said it will relocate in Canada and it expects 2015 revenues and margins to be "materially lower" than in 2014.
Athlon Energy soared after news that Encana had agreed a takeover worth $7.1bn, while DreamWorks Animation rose significantly, following reports that Tokyo-based Softbank had made a $3.4bn offer for the group, valuing the shares at $32 each.
The price, first cited by a report in the Hollywood Reporter on Saturday, would represent 43% premium on the stock's closing price on Friday.
The 10-year US Treasury note yield dropped four basis points to 2.49%, while the five-year note yield lost three basis points to 1.77% and the 30-year bond declined by another four basis points to 3.169%. |
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| | Broker Tips | | Broker tips: BAE Systems, Associated British Foods, Tesco Shares of aerospace engineer BAE Systems have run up by 12% relative to the Footsie over the past quarter, but it's time to sell, say analysts at Westhouse Securities.
Thus, the firm can be expected to benefit from weakness in sterling. However, several negative aspects seen in recent reporting periods have been replaying themselves. Amongst these one might mention: a shipbuilding charge, slightly weak order intake, goodwill impairment and a potential disruption from the 'continuing resolution' (CR) in the US Congress.
The latter of those issues may likely endure longer than 2014, the broker says, to which one can add management's caution.
With only 19 voting days left for the house this year CR may well run into the next, Westhouse explains.
Furthermore, the company's book-to-bill ratio of 0.75 times the broker's 2014 revenue estimate is "low", despite the fact that the average contract duration for the company is longer than for others.
For all of the above reasons Westhouse Securities reiterated its sell recommendation and 469p target.
As emerging market economies continue to slow and the developed world takes centre stage it is hard to find a better structural growth story than Primark, analysts at Credit Suisse explained to clients on Tuesday. For that reason they decided to upgrade their recommendation on the stock to 'outperform'.
In their opinion the 2015/16 year should see a significant increase in earnings per share (EPS) as the number of Primark establishments opening accelerates and the company enters the US. As well, the profitability of the sugar division has reached its trough, they believe, and will likely recover smartly as the lower beet prices feed into earnings.
EPS, they calculate, will expand at a 15% clip.
Hence, the stock's EPS multiple is now forecast to decrease to 24 times next year in comparison to 30 times this year.
Given that the Swiss broker's 'sum-of-the-parts' valuation is still pointing to a price target of 30 it has decided to upgrade its recommendation on the shares to 'outperform' from 'neutral', with a 3,000 price target.
As of 16:12 shares in Associated British Foods are advancing 4.53% to 2,679p.
For analysts at Nomura the latest 'profit warning' from Tesco puts that company's credit metrics effectively into 'junk' territory, as per a research note issued on 29 September.
As regards the company's fundamentals, if one takes the better part of the firm's 250m profit warning at face value then that means its operating margins in the UK, on an EBIT basis, would come in at 2.8%.
The key metric is the company's gearing they point out and, in turn from the above, they estimate that the retailer's net debt to operating earnings (adjusted EBITDAR) comes in at 3.65, whereas the threshold for 'junk' in the sector comes in at 3.5.
However, while they believe that a rights issue just got "a lot more likely" they still do not believe it should be the "base case" , nor do they believe it would be the right thing for the supermarket operator to do.
Hence, they further point out that on the basis of the company's debt refinancing schedule, and of the current likely rates - using CDS on existing debt as a proxy for example - suggest the impact of becoming and remaining junk for several years in terms of interest cost would be negligible.
Should the company attempt to recover a position in the middle of the pack in terms of the aforementioned debt multiple that would imply raising about 2bn, or issuing approximately another 15% of shares, "probably at a significant discount".
The broker maintained its 'neutral' recommendation on the shares and 200p target. | | |
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